Momentum anomaly: evidence from India

Purpose This paper aims to examine the presence of momentum profit in the Indian stock market and seeks to explore the sources of momentum profit employing both risk based and behavioral models. R2, idiosyncratic volatility, and delay measures are employed in order to test behavioral models. Design/methodology/approach The paper follows Jegadeesh and Timan's methodology in constructing momentum portfolios. Findings The study finds strong presence of momentum profits in India during 1995‐2006. The risk based models such as CAPM and Fama‐French fail to account for the phenomenon. Idiosyncratic risk exhibits a positive relation with momentum, lending support to behavioural factors as source of momentum phenomenon. Practical implications In forming portfolios, selecting the stocks which have been winners in the last three and six months can help investors and fund mangers earn substantial profit. Originality/value The study employs behavioral variables to explain the momentum phenomenon. In the Indian context it is an unexplored area.